Indonesia pitches green credentials of new capital city, tells investors ‘don’t worry’
INDONESIAN leaders came to the Ecosperity sustainability conference with a message to potential investors: Nusantara, its new capital city, offers sustainable investment opportunities; and investors do not have to worry.
However, experts told The Business Times that there is more Indonesia has to do to build confidence among investors, beyond just verbal assurances.
Concerns over political stability, regulations surrounding the construction of Nusantara, scepticism over Indonesia’s sustainability practices and slow bureaucratic reform to ensure accountability and transparency of funds are some of the bigger challenges the government has to overcome, they said.
President Joko Widodo, along with other Indonesian officials, was in Singapore this week to make a pitch for Nusantara, a mega infrastructure project that will cost US$34 billion.
Indonesia will cover 20 per cent of the funding required from its national budget for the first phase of construction due to be completed in 2024, with the rest to be supplemented by foreign and private investment.
The government had recently offered 300 investment packages worth a total of US$2.6 billion for investors, and also offered incentives to investors – such as tax breaks – to sweeten the deal.
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“Everything will be fine. No need to worry, your investment in Indonesia will continue to be safe, and also the continuity of Nusantara capital city,” said Jokowi, as the president is more popular known, on Wednesday (Jun 7).
Echoing Jokowi’s message of assurance, Bambang Susantono, chairman of Nusantara National Capital Authority – the government office heading the project – said at the same conference that Indonesia has come up with “solid laws” that guarantees the sustainability of this project.
No investment deals have been inked yet, but Susantono said that Indonesia is in the midst of sealing some of them, with investors from at least five countries – South Korea, Japan, China, Germany and the United Arab Emirates – currently conducting due diligence.
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Investors may not see the Nusantara project as the “golden opportunity” Jokowi made it out to be, given that the funding shortfall of close to US$30 billion is quite significant, said experts.
Ensuring political stability, as well as the continued construction of the capital, beyond the presidential election next year is essential to convince investors, said Dominique Nicky Fahrizal, researcher at the Centre for Strategic and International Studies. Jokowi, who is currently serving his second term, is not able to run in next year’s election as Indonesia’s constitution mandates that a president can only serve a maximum of two five-year terms.
Another key concern is over the constant revision of regulations that govern the construction of the new capital city. There is another round of revision slated in parliament, and Fahrizal noted that this causes uncertainty for investors.
Indonesia officials have positioned Nusantara as the world’s first sustainable capital city, with ambitions of the city running fully on renewable energy. But Sulfikar Amir, associate professor of sociology at Nanyang Technological University, noted that the city’s design is incongruent with sustainability principles and does not address the resulting social and environmental upheavals resulting from the construction.
This may hinder investors that have strong environmental, social and governance (ESG) commitments from taking the risk.
Melinda Martinus, lead researcher of the South-east Asia climate change programme at research institute Iseas-Yusof Ishak Institute, said that sceptism over Indonesia’s reputation in sustainability practices are not new, due to conflicts over palm oil labour abuse and illegal logging.
“Changing these perceptions is a delicate task for the current government, but they realise that need to up their... sustainability standards,” she added. A healthy government bureaucracy is also important for the accountability and transparency of funds, noted Fahrizal. However, bureaucratic reform in Indonesia has stagnated.
“It takes firm political will and commitment to accelerate bureaucratic reform so that... accountability and transparency become mainstream,” he added.
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